In what the Indian Government terms as an unprecedented achievement for India’s financial sector, the country’s banking industry has reported its highest-ever net profit, surpassing ₹3 lakh crore, according to Nirmala Sitharaman, Minister of Finance, Government of India. The remarkable turnaround in the banking sector is attributed to the decisive leadership of Prime Minister Narendra Modi and the comprehensive reforms initiated by his government, she said.
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Finance Minister Nirmala Sitharaman highlighted this achievement, stating: “Our banking sector, often considered the backbone of the nation’s economy, has achieved a significant milestone. This success story is a direct result of PM Modi’s strong and decisive leadership, which began with the 2015 ‘Gyan Sangam’ meeting where critical reforms were set in motion.”
The 4R’s Strategy for Banking Industry
The Indian government implemented a comprehensive 4R’s strategy: Recognising NPAs transparently, Resolution and Recovery, Recapitalising PSBs, and Reforms. This strategy has been instrumental in transforming the banking sector:
- Banks were encouraged to identify non-performing assets (NPAs) clearly, ensuring transparency.
- Mechanisms like the Insolvency and Bankruptcy Code (IBC) and the Fugitive Economic Offenders Act were introduced for faster recoveries and stringent action against defaulters.
- Through Mission Indradhanush, over Rs 3.10 lakh crore was infused to strengthen public sector banks (PSBs).
- Governance improvements, reduced political interference, and professional integrity were emphasized. The Banks Board Bureau (BBB) was established for transparent selection of top executives.
Key Reform Initiatives
Sitharaman also highlighted several reforms that these initiatives led to. Some of them are as follows:
- Insolvency and Bankruptcy Code (IBC): Facilitated faster recoveries, crucial for maintaining bank health.
- Fugitive Economic Offenders Act of 2018: Enabled the seizure of assets from offenders who fled the country.
- SARFAESI Act Amendments: Enhanced the effectiveness of asset recovery processes.
- Enhanced Access and Service Excellence (EASE) Reforms: Ongoing phases to improve bank management and service delivery.
Recovery and Profitability for Indian Banking Industry
Between 2014 and 2023, banks recovered more than Rs 10 lakh crore from bad loans. The Public Sector Banks (PSBs) recorded their highest-ever aggregate net profit of Rs 1.41 lakh crore in FY 2023-24, nearly four times higher than the Rs 36,270 crore in FY 2014. This profitability enabled PSBs to declare dividends of Rs 27,830 crore, contributing significantly to welfare schemes.
Reduction in NPAs and Enhanced Resilience
Sitharaman said that net NPAs declined significantly to 0.76% in March 2024 from 3.92% in March 2015, while the gross NPA ratio was reduced to 3.47% from a peak of 14.58% in March 2018. Additionally, the Provisioning Coverage Ratio (PCR) increased to a robust 92.99% in March 2024, and capital adequacy improved to 15.53% from 11.45% in March 2015.
Financial Inclusion and Credit Growth
The reforms and policies have led to a substantial increase in agricultural credit, which has grown 2.5-fold to Rs 21.55 lakh crore in FY 2022-23. The PM MUDRA Yojana and PM Jan Dhan Yojana have been particularly impactful, providing loans worth Rs 28 lakh crore to over 48 crore people and creating over 52 crore PM Jan Dhan accounts, respectively.
Sitharaman stated: “A robust banking sector is essential for a thriving economy. Our reforms have ensured that banks are not just pillars of financial stability but also partners in India’s growth journey towards Viksit Bharat by 2047. We will continue to take decisive measures to strengthen and stabilize our banking system, ensuring that it supports India’s growth path effectively.”
